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Trade-Ideas: AAR Corporation (AIR) Is Today's "Dead Cat Bounce" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified
AAR Corporation (
AIR) as a "dead cat bounce" (down big yesterday but up big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified AAR Corporation as such a stock due to the following factors:

AIR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $15.0 million.

AAR CORP. provides products and services to aviation, government, and defense markets worldwide. The company operates trough two segments, Aviation Services and Technology Products. The stock currently has a dividend yield of 1%. AIR has a PE ratio of 21.7. Currently there are 3 analysts that rate AAR Corporation a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for AAR Corporation has been 270,800 shares per day over the past 30 days. AAR has a market cap of $1.2 billion and is part of the services sector and transportation industry. The stock has a beta of 2.12 and a short float of 3.1% with 2.15 days to cover. Shares are up 60.2% year to date as of the close of trading on Wednesday.

TheStreet Quant Ratings rates AAR Corporation as a
buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

Despite its growing revenue, the company underperformed as compared with the industry average of 8.6%. Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.

The debt-to-equity ratio is somewhat low, currently at 0.77, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.00, which illustrates the ability to avoid short-term cash problems.

Compared to its closing price of one year ago, AIR's share price has jumped by 72.39%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AIR should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.

AAR CORP has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, AAR CORP reported lower earnings of $1.36 versus $1.66 in the prior year. This year, the market expects an improvement in earnings ($2.02 versus $1.36).

The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Aerospace & Defense industry. The net income has significantly decreased by 95.3% when compared to the same quarter one year ago, falling from $12.88 million to $0.60 million.